Risks of corruption and bribery are key factors that multinational companies take into account when deciding to invest money or conduct business in Thailand. Early this month, a well-known US-based company selling farm and construction equipment paid $10 million (329 million baht) to settle charges from the US Securities and Exchange Commission after its Thai subsidiary was found bribing government officials to secure procurement contracts from the Department of Highways (DoH) and the Department of Rural Roads (DRR).
This case underscores the dual-edged nature of bribery: while it may offer immediate business advantages, it also exposes companies to significant legal liabilities, particularly in jurisdictions like the United States, where anti-bribery laws such as the Foreign Corrupt Practices Act (FCPA) are stringently enforced.
The central question is: How can Thailand mitigate these risks while continuing to attract foreign investment?
Over the past year, official Thai representatives have been negotiating the Indo-Pacific Economic Framework (IPEF) with partner countries. One related provision is Pillar 4 of the framework, known as the "fair economy" pillar, which aims to create a level playing field for investment by promoting government transparency and enhancing economic competition. IPEF Pillar 4 will focus on two key areas -- the first is anti-corruption/anti-money laundering, and the second is transparent corporate tax collection.
In this respect, a successful campaign to eliminate transnational bribery would enhance fair competition in Thailand, enticing multinational companies to invest here. Businesses would no longer need to resort to bribery to gain an advantage; instead, they would compete based on innovation and service quality.
Meanwhile, countries would no longer compete in tax-cutting to attract foreign investment and instead focus on creating solid regulations and infrastructure conducive to sustainable business growth.
We have emphasised that Thailand still needs to improve its anti-corruption and anti-money laundering laws to meet international standards. Key areas that need the most focus are measures to identify the "ultimate beneficial owner" of corporate entities.
Another recommendation is new legal frameworks for "deferred prosecution agreements", allowing corruption cases to be settled through fines rather than costly criminal proceedings, similar to the US model for handling cross-border bribery.
Legal reforming is not enough; Thailand requires enhanced financial intelligence capabilities. International cooperation in gathering evidence and tracing financial flows in cross-border bribery cases would be crucial in recovering assets transferred abroad.
Asset recovery has proven challenging for Thailand. A lone notable success was the recovery of 10 million baht in 2013 from a kickback scheme linked to the organisation of the 2002-2007 Bangkok International Film Festival.
However, legal means cannot reach other high-profile corruption cases, such as money that has been laundered or moved outside the country. As such, improved access to financial data from partner countries under IPEF Pillar 4 would benefit Thailand's ongoing efforts to combat corruption and money laundering.
IPEF Pillar 4, which will enter into force in the near future, will not impose new obligations on Thailand. Instead, it will leverage existing international conventions or cooperation frameworks Thailand has already endorsed.
The agreement provides technical support to Thai government agencies such as the National Anti-Corruption Commission (NACC) and the Anti-Money Laundering Office (Amlo). Both agencies must reform regulations to align with international standards such as the United Nations Convention Against Corruption (UNCAC), the OECD's Anti-Bribery Convention, and the Financial Action Task Force (FATF)'s anti-money laundering standards.
Another key component of Pillar 4 is its alignment with global tax reform. Thailand has committed to the OECD's Global Forum, which mandates the exchange of tax information among signatory governments, and to the OECD's Two-Pillar Solution, which includes a global minimum effective corporate tax rate of 15%, agreed upon by more than 140 countries.
This reform will ensure that multinational companies compete on innovation rather than exploiting tax loopholes. It also reduces the need for countries to engage in harmful tax competition to attract investment. For Thailand, this marks a strategic shift. Currently, the country relies heavily on tax incentives through the Board of Investment (BOI) to lure foreign capital.
With the implementation of new tax reforms, BOI incentives will be limited. Consequently, Thailand will need to use new strategies, such as providing investment grants and making it more convenient to conduct business to attract foreign investors. This creates an opportunity to encourage innovation and long-term growth rather than reliance on tax breaks or under-the-table deals.
There have been no major obstacles preventing Thailand's Revenue Department from complying with international tax frameworks, as it is already well-prepared. IPEF Pillar 4 will support the department in updating and enforcing tax regulations to align with OECD standards. Furthermore, some details of the tax cooperation frameworks are still being negotiated, meaning there will be no immediate impact on Thailand.
Overall, IPEF Pillar 4 will create opportunities and support for Thailand to step up efforts to tackle cross-border corruption and bribery, both longstanding issues that have long elevated business and investment risks in the country. It will also help Thailand improve its corporate tax laws and measures to make them more transparent and efficient.
All of these are necessary steps for Thailand to align with the international standards it has already signed up for. The framework, therefore, does not impose new obligations but rather supports Thailand in its ongoing reforms.
Moreover, the regulatory reforms discussed here are essential elements in Thailand's evaluation process for potential OECD membership, which could be a significant achievement for the government. IPEF Pillar 4 can accelerate the reform process and ensure Thailand remains an attractive destination for international business.
Bhumpat Ngamyingsanga is a researcher and Tippatrai Saelawong is a Senior Researcher at Thailand development research institute (TDRI). Policy analyses from the TDRI appear in the Bangkok Post on alternate Wednesdays.